There are a few main factors that go into figuring out how much money your life insurance policy is worth. The type of policy has an impact on how you can access cash. Permanent policies, including universal life, whole life, and variable life, build up cash value over time that the policy owner can borrow from or cash out. If you choose to cash out of your permanent life insurance policy, your beneficiaries will no longer receive the face value of the policy when you die.
If you have a convertible term life insurance policy that’s nearing its expiration date, you can pay a much higher premium and choose to turn it into a permanent life insurance policy. Many people with term life insurance policies don’t realize they also have the option of selling the policy for cash through a term life settlement.
How much money you can get by selling your life insurance policy through a life settlement depends on many factors including your age, your life expectancy, the type of policy you have, the current interest rate climate, and the companies that are interested in buying your policy.
In general, if you are over the age of 65 or you are younger but have a terminal diagnosis from a doctor with less than two years to live, and your life insurance policy has a face value of more than $100,000, you can sell your life insurance policy.
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Small life insurance policies may still be eligible for a life settlement
Because the life settlement company has fixed costs they must pay for every policy they purchase, policies smaller than $100,000 may be more difficult to sell. Your life settlement broker may have relationships with companies that routinely purchase smaller policies, though.
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Factors that affect how much your life insurance policy is worth
Policy size
The provider, or life insurance policy buyer, will pay more for larger policies since they collect the death benefit when you die.
Premium cost
If your policy has low premiums, it may be worth more to an investor. They pay the premiums during the time between taking ownership of the policy and your death. The less money they must pay out to keep the policy in force, the greater the return on their investment.
Your life expectancy
Determining how much money your life insurance policy is worth involves having a life expectancy underwriter look at your medical records to estimate how long you’ll live. Older policyholders and those who are terminally ill typically have shorter life expectancies. This means they are likely to get more money for their policy in a life settlement than someone with a longer life expectancy.
Average life settlement payouts
If you decide to consult a life settlement broker to get an estimate of how much money your life insurance policy may be worth, keep in mind that for the policy to be attractive to buyers, the projected premium payments must be smaller than the death benefit.
On average, seniors seeking a life settlement can expect a payment of 20% of the policy’s death benefit. For example, a 70-year-old man with a permanent life insurance policy worth $800,000 could reasonably expect to receive $160,000 before broker’s fees and taxes in a life settlement.
Surrender life insurance policy for cash
If you have a permanent life insurance policy, you may be able to surrender it back to the insurance company in exchange for the cash value that’s built up over the years. You can find out exactly how much money you’d get in this scenario by calling the insurance company’s customer service department.
With this option, your policy terminates, and the named beneficiaries do not receive a payout when you die. When you talk with your life insurance company, find out how surrender fees affect the final amount you’ll receive. Discuss this option with a tax expert to learn about how a cashing out your life insurance may affect your income taxes.
Before you make a final decision about whether to surrender your life insurance policy for its cash value, find out how much money you could get from a life settlement. While the life settlement option pays less than the face value of the insurance policy, even after broker’s fees, it pays more than the surrender value.
Working with a life settlement broker increases your payout
An experienced licensed life settlement broker can answer your questions about the life settlement process and represent you in negotiations with investors. Life settlement investors, or providers, purchase life insurance policies and then sell fractional interests in a group of policies to investors.
It’s in their best interests to buy life insurance policies as cheaply as possible to maximize their returns. A broker’s job is to help you get the highest payout for your life insurance policy by collecting multiple bids and negotiating with providers on your behalf.
When you decide to pursue the life settlement option, your broker will collect information about you and your life insurance policy. They’ll be able to offer you a personalized estimate of how much money your policy may be worth.
Laws governing life settlements allow the policy owner to change their mind at any point in the process. Even after the final papers are signed and the funds leave escrow, the policy owner can return the money and regain ownership of their life insurance policy during the rescission period.
Before agreeing to a life settlement amount, consult a tax professional to find out receiving a large payout from the sale of your life insurance policy may affect your income taxes. Most of the time, the total amount of money that you paid in premiums will pass to your tax-free in a life settlement.
You can find out how much money your life insurance policy may be worth, here.